Retail sector shares contributed to Wall Street’s rally on Tuesday as investors swarmed the sector following some solid Q3 earnings numbers and ahead of the Black Friday and Christmas Holiday trading period.

While the retail sector is susceptible to declines in consumer spending from macroeconomic headwinds, these stocks usually generate strong cash flows which provide management with balance sheet flexibility. 

While analysts remain cautious on the sector, there have been pockets of optimism observed in areas of the sector.

Some of the retail stocks that reported earnings on Tuesday and lifted confidence in the sector were:

Best Buy (US:BBY), which topped the S&P 500 index rallying 12.8% on the back of a better-than-expected third quarter earnings print. Comparable sales declined by -10% over the year with the street expecting declines of around -13%.

BBY generated underlying earnings per share of $1.38 compared to analyst forecasts of only $1.03 per share. The group generated sales of $10.59 billion which were ahead of expectations of around $10.31 billion.

Following the solid result, Best Buy management stuck to their fourth quarter guidance expecting comparable sales to decline by around 10% over the year. BBY’s stock rallied 12.78% following the news.

Department store heavyweight Nordstrom (US:JWN) rallied 6.5% over the day before it reported Q3 results after market. Nordstorm generated underlying EPS of 20 cents per share, beating forecasts of around 15 cents. On a statutory basis, the retailer generated a -$20 million loss compared to a $64 million profit in the prior year.

The group's sales came in at $3.43 billion and marginally missed consensus expectations of $3.50 billion. Management provided guidance for the full year expecting EPS of between $2.13 to $2.43 with revenue growth of 5-7%. Analysts polled EPS forecasts of around $2.30 for the full year.

Investors weren’t pleased with JWN declining -9.2% in after hours trading.

Lifestyle retailer Abercrombie & Fitch Co (US:ANF) saw some of the strongest gains, moving 21.2% higher over the day. New sales were down -3% on a reported basis but came in flat on a constant currency basis. Adjusted EPS declined to 1 cent from 76 cents in 2021. The marginal underlying profits pleased analysts that were expecting Abercrombie to post negative EPS of around -13 cents per share. Management noted in commentary that they are cautiously optimistic about the holiday trading season.

Dick’s Sporting Goods (US:DKS) charged 10.1% higher as the company generated sales of $2.96 billion, which beat forecasts of $2.70 billion. Underlying earnings per share came in at $2.60, beating forecasts of around $2.26 per share. The retailer narrowed its underlying full year guidance range for EPS to $11.50-12.1 compared to its prior range of $10.0-12.0.

Clothing and accessory retailer American Eagle Outfitters (US:AEO) reported third quarter revenues of $1.24 billion and marginally beating consensus forecasts of $1.21 billion. 

AEO’s net income declined to $81.27 million from $152.22 million in 2021 equating to GAAP EPS of 42 cents. The result was well ahead of analyst consensus forecasts which polled around 22 cents. AEO rallied 18.2% following the beat. 

Off-price department store retailer Burlington (US:BURL) rallied 20.5% after generating $2.04 billion in sales which was in-line with the streets’ expectations. Profits marginally missed with underlying earnings per share of 43 cents compared to forecasts of around 53 cents. Despite the underperformance in profit, investors remained upbeat on the expectations for Q4 with management noting that trends from mid-October to November had improved with encouraging signs.

Clothing retailer Guess (US:GES) saw a marginal 1.5% gain into its Q3 result which came out post market. Guess’s net revenue declined marginally from $643 million to $633 million over the year. Net profits declined at a faster rate from $29.88 million in 2021 to $21.84 million in 2022.

For the full year, Guess management expects 2% revenue growth compared to 1.5% growth previously provided. The company also took the time to reduce EPS guidance from $2.65 to $2.35. GES shares -6.1% lower in after hours trading.